IDEAS home Printed from https://ideas.repec.org/a/tpr/restat/v99y2017i3p478-485.html
   My bibliography  Save this article

Two-Way Models for Gravity

Author

Listed:
  • Koen Jochmans

    (Sciences Po)

Abstract

Empirical models for dyadic interactions between n agents often feature agent-specific parameters. Fixed-effect estimators of such models generally have bias of order n −1 , which is nonnegligible relative to their standard error. Therefore, confidence sets based on the asymptotic distribution have incorrect coverage. This paper looks at models with multiplicative unobservables and fixed effects. We derive moment conditions that are free of fixed effects and use them to set up estimators that are n -consistent, asymptotically normally distributed, and asymptotically unbiased. We provide Monte Carlo evidence for a range of models. We estimate a gravity equation as an empirical illustration.

Suggested Citation

  • Koen Jochmans, 2017. "Two-Way Models for Gravity," The Review of Economics and Statistics, MIT Press, vol. 99(3), pages 478-485, July.
  • Handle: RePEc:tpr:restat:v:99:y:2017:i:3:p:478-485
    as

    Download full text from publisher

    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00620
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fernández-Val, Iván & Weidner, Martin, 2016. "Individual and time effects in nonlinear panel models with large N, T," Journal of Econometrics, Elsevier, vol. 192(1), pages 291-312.
    2. Iván Fernández‐Val & Joonhwah Lee, 2013. "Panel data models with nonadditive unobserved heterogeneity: Estimation and inference," Quantitative Economics, Econometric Society, vol. 4(3), pages 453-481, November.
    3. Daniel Aaronson & Lisa Barrow & William Sander, 2007. "Teachers and Student Achievement in the Chicago Public High Schools," Journal of Labor Economics, University of Chicago Press, vol. 25(1), pages 95-135.
    4. repec:hal:wpspec:info:hdl:2441/3vl5fe4i569nbr005tctlc8ll5 is not listed on IDEAS
    5. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09ij4j0h0h1 is not listed on IDEAS
    6. William Greene, 2004. "The behaviour of the maximum likelihood estimator of limited dependent variable models in the presence of fixed effects," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 98-119, June.
    7. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-938, July.
    8. Wooldridge, Jeffrey M., 1997. "Multiplicative Panel Data Models Without the Strict Exogeneity Assumption," Econometric Theory, Cambridge University Press, vol. 13(5), pages 667-678, October.
    9. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 225-238.
    10. Jinyong Hahn & Whitney Newey, 2004. "Jackknife and Analytical Bias Reduction for Nonlinear Panel Models," Econometrica, Econometric Society, vol. 72(4), pages 1295-1319, July.
    11. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    12. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    13. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    14. M. J. Andrews & L. Gill & T. Schank & R. Upward, 2008. "High wage workers and low wage firms: negative assortative matching or limited mobility bias?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 673-697, June.
    15. James J. Heckman & Thomas E. Macurdy, 1980. "A Life Cycle Model of Female Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 47-74.
    16. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j0031f620 is not listed on IDEAS
    17. Guimaraes, Paulo & Portugal, Pedro, 2009. "A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed Effects," IZA Discussion Papers 3935, Institute of Labor Economics (IZA).
    18. Donald, Stephen G. & Imbens, Guido W. & Newey, Whitney K., 2003. "Empirical likelihood estimation and consistent tests with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 117(1), pages 55-93, November.
    19. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Applications to Poisson Models," Econometrica, Econometric Society, vol. 52(3), pages 701-720, May.
    20. Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
    21. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    22. Manning, Willard G. & Mullahy, John, 2001. "Estimating log models: to transform or not to transform?," Journal of Health Economics, Elsevier, vol. 20(4), pages 461-494, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:hal:spmain:info:hdl:2441/75dbbb2hc596np6q8flqf6i79k is not listed on IDEAS
    2. repec:hal:wpspec:info:hdl:2441/75dbbb2hc596np6q8flqf6i79k is not listed on IDEAS
    3. repec:spo:wpecon:info:hdl:2441/75dbbb2hc596np6q8flqf6i79k is not listed on IDEAS
    4. repec:spo:wpmain:info:hdl:2441/75dbbb2hc596np6q8flqf6i79k is not listed on IDEAS
    5. Karyne B. Charbonneau, 2014. "Multiple Fixed Effects in Binary Response Panel Data Models," Staff Working Papers 14-17, Bank of Canada.
    6. Kareem, Fatima Olanike & Martinez-Zarzoso, Inmaculada & Brümmer, Bernhard, 2016. "Fitting the Gravity Model when Zero Trade Flows are Frequent: a Comparison of Estimation Techniques using Africa's Trade Data," GlobalFood Discussion Papers 230588, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    7. Geert Dhaene & Koen Jochmans, 2015. "Split-panel Jackknife Estimation of Fixed-effect Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(3), pages 991-1030.
    8. Koen Jochmans & Vincenzo Verardi, 2022. "Instrumental‐variable estimation of exponential‐regression models with two‐way fixed effects with an application to gravity equations," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(6), pages 1121-1137, September.
    9. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    10. J. M. C. Santos Silva & Silvana Tenreyro, 2022. "The Log of Gravity at 15," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(3), pages 423-437, September.
    11. Fally, Thibault, 2015. "Structural gravity and fixed effects," Journal of International Economics, Elsevier, vol. 97(1), pages 76-85.
    12. Chen, Mingli & Fernández-Val, Iván & Weidner, Martin, 2021. "Nonlinear factor models for network and panel data," Journal of Econometrics, Elsevier, vol. 220(2), pages 296-324.
    13. Weidner, Martin & Zylkin, Thomas, 2021. "Bias and consistency in three-way gravity models," Journal of International Economics, Elsevier, vol. 132(C).
    14. repec:hal:spmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    15. Mario Larch & Yoto V. Yotov, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," CESifo Working Paper Series 6020, CESifo.
    16. repec:spo:wpecon:info:hdl:2441/2etjsneok98utpcm5s44jn4dlh is not listed on IDEAS
    17. repec:spo:wpmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    18. French, Scott, 2016. "The composition of trade flows and the aggregate effects of trade barriers," Journal of International Economics, Elsevier, vol. 98(C), pages 114-137.
    19. repec:hal:spmain:info:hdl:2441/f6h8764enu2lskk9p2m9mgp8l is not listed on IDEAS
    20. repec:hal:wpspec:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    21. repec:spo:wpecon:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    22. repec:spo:wpmain:info:hdl:2441/f6h8764enu2lskk9p2m9mgp8l is not listed on IDEAS
    23. repec:hal:spmain:info:hdl:2441/2etjsneok98utpcm5s44jn4dlh is not listed on IDEAS
    24. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p2m9mgp8l is not listed on IDEAS
    25. repec:hal:wpspec:info:hdl:2441/f6h8764enu2lskk9p2m9mgp8l is not listed on IDEAS
    26. repec:hal:wpspec:info:hdl:2441/2etjsneok98utpcm5s44jn4dlh is not listed on IDEAS
    27. repec:spo:wpmain:info:hdl:2441/2etjsneok98utpcm5s44jn4dlh is not listed on IDEAS
    28. Iván Fernández-Val & Martin Weidner, 2018. "Fixed Effects Estimation of Large-TPanel Data Models," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 109-138, August.
    29. Markus Brueckner & Ngo Van Long & Joaquin L. Vespignani, 2020. "Non-Gravity Trade," Globalization Institute Working Papers 388, Federal Reserve Bank of Dallas.
    30. Schaak, Henning, 2015. "The Impact of Free Trade Agreements on International Agricultural Trade: A Gravity Application on the Dairy Product Trade and the ASEAN-China-FTA," 55th Annual Conference, Giessen, Germany, September 23-25, 2015 211619, German Association of Agricultural Economists (GEWISOLA).
    31. Maria Cipollina & Luca De Benedictis & Luca Salvatici & Claudio Vicarelli, 2016. "Policy Measurement And Multilateral Resistance In Gravity Models," Working Papers LuissLab 16130, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    32. Thomas Chaney, 2018. "The Gravity Equation in International Trade: An Explanation," Journal of Political Economy, University of Chicago Press, vol. 126(1), pages 150-177.
    33. Martin, Will, 2020. "Making Gravity Great Again," 2020: Economic Implications of COVID-19, December 14-15, Virtual Platform 339376, International Agricultural Trade Research Consortium.
    34. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    35. Benedikt Heid & Mario Larch & Yoto V. Yotov, 2021. "Estimating the effects of non‐discriminatory trade policies within structural gravity models," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 376-409, February.
    36. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:99:y:2017:i:3:p:478-485. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: The MIT Press (email available below). General contact details of provider: https://direct.mit.edu/journals .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.